1989 (11) TMI 88 - AT - Income Tax

Expenditure On Sales Promotion Purchase Price Sales Promotion Expenses Unexplained Investments

Issues Involved:
1. Claim of Rs. 2,611 as cost of silver awarded to students.
2. Allowance of various reliefs including gifts, Diwali sweets, briefcases, and 'Kavi Sammelan' expenses.
3. Claim of bad debts/trade irrecoverables amounting to Rs. 2,81,237.
4. Addition of Rs. 2 lakhs related to conversion of damaged newsprint.
5. Addition of Rs. 5,09,400 in respect of sale of waste.
6. Claim for repairs to office and press premises amounting to Rs. 2,36,574.
7. Allowance of depreciation on commercialisation charges.
8. Addition of Rs. 8,63,540 related to purchase of newsprint and white printing paper.
9. Disallowances under sections 37(3A) and 37(3B).
10. Disallowance under section 40A(5).
11. Charge of interest under section 216.
12. Disallowance of two-thirds of commission/trade discount to selling agents and advertising agencies.

Issue-wise Detailed Analysis:

1. Claim of Rs. 2,611 as Cost of Silver Awarded to Students:
The Income-tax Officer disallowed the expense, stating it was not connected with the assessee's business. The Commissioner (A) allowed the claim, accepting that it was in the interests of journalism and the assessee. The Tribunal agreed with the Commissioner (A), referencing CIT v. Delhi Cloth & General Mills Co. Ltd., where similar expenses were allowed for publicity purposes.

2. Allowance of Various Reliefs:
The Income-tax Officer disallowed expenses for gifts, Diwali sweets, briefcases, and 'Kavi Sammelan'. The Commissioner (A) reduced the disallowance for gifts, allowed expenses on Diwali sweets and briefcases as normal business practice, and allowed 'Kavi Sammelan' expenses as labor welfare activity. The Tribunal upheld the Commissioner (A)'s decision, stating no element of hospitality was involved and the expenses did not exceed limits given in the Board's circular.

3. Claim of Bad Debts/Trade Irrecoverables:
The Income-tax Officer allowed only Rs. 7,318 out of Rs. 2,81,237, disallowing the rest due to lack of exhausted recovery efforts. The Commissioner (A) upheld the claim, noting the practical angle and previous Tribunal decisions supporting such write-offs. The Tribunal agreed, stating the pattern of facts remained the same as in earlier years.

4. Addition of Rs. 2 Lakhs Related to Conversion of Damaged Newsprint:
The Income-tax Officer disallowed the claim, stating it was not commensurate with the yield. The Commissioner (A) accepted the claim, showing cost savings due to conversion. The Tribunal upheld the Commissioner (A)'s decision, noting the wastage allowed in earlier years and the commensurate yield.

5. Addition of Rs. 5,09,400 in Respect of Sale of Waste:
The Income-tax Officer made a similar addition in the preceding year, which was deleted by the Commissioner (A). The Tribunal upheld the deletion, stating the addition was based on mere suspicion without material evidence.

6. Claim for Repairs to Office and Press Premises:
The Income-tax Officer capitalized the expenditure, considering it of a capital nature. The Commissioner (A) held it as revenue expenditure, incurred on replacing old and worn-out parts without new construction. The Tribunal upheld the Commissioner (A)'s decision, referencing relevant case laws.

7. Allowance of Depreciation on Commercialisation Charges:
The Commissioner (A) found the matter covered in favor of the assessee by previous appellate orders and a Delhi High Court decision. The Tribunal upheld the Commissioner (A)'s decision, following these precedents.

8. Addition of Rs. 8,63,540 Related to Purchase of Newsprint and White Printing Paper:
The Income-tax Officer made the addition based on a statement from a third party, alleging overpayment and inflation in purchase price. The Commissioner (A) deleted the addition, citing lack of evidence and reliance on surmises. The Tribunal upheld the deletion, noting the credibility of payments made by account payee cheques and the lack of corroborative evidence.

9. Disallowances Under Sections 37(3A) and 37(3B):
The Commissioner (A) deleted disallowances for driver benefits and depreciation, stating they were not justified. The Tribunal agreed, noting the details provided by the assessee and the nature of depreciation as a statutory allowance. Disallowances for traveling expenses and 'Kavi Sammelan' were also deleted, with the Tribunal supporting the Commissioner (A)'s view.

10. Disallowance Under Section 40A(5):
The Commissioner (A) deleted disallowances for house rent allowance and medical expenses, following previous Tribunal decisions and a Delhi High Court ruling. The Tribunal upheld this deletion, finding no force in the department's ground.

11. Charge of Interest Under Section 216:
The Commissioner (A) deleted the charge, noting the minor difference between the estimated and returned income. The Tribunal upheld this decision, referencing a similar deletion in the preceding year.

12. Disallowance of Two-Thirds of Commission/Trade Discount:
The Income-tax Officer disallowed the commission, considering it as sales promotion expense. The Commissioner (A) upheld this view. The Tribunal disagreed, stating the commission was a proper business expense and not for sales promotion. The addition was deleted, noting the inherent nature of the newspaper business and the role of agents.

Conclusion:
The Tribunal upheld the Commissioner (A)'s decisions on most points, emphasizing the lack of evidence and reliance on surmises by the Income-tax Officer. The disallowances and additions were largely deleted, supporting the assessee's claims.

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